Turning Points: Currencies, Commodities, and Credit Markets
The Fed’s discussion of tapering has sent global currency markets into a tizzy. Now, central banks around the world have shifted from currency wars and cheapening their currencies to strengthening their currencies, tightening rates, and increasing capital controls. There’s only one problem: Can the US achieve escape velocity? With mortgage rates backing up, mortgage applications appear to be quite sensitive to increases in rates. Can the US housing market get over the hump of rising rates? Of course, credit quality is slowly deteriorating with subprime starting to increase in housing, auto loans, and in effect, student loans. And, China is showing increased signs of slowing, which is of course affecting the structure of commodity markets. The ripple effects run far and wide.
Here’s a wrap-up of key issues affecting global markets for fundamental investors.
Currencies
- “Hot Money Sends Currency Wars into Reverse“: Emerging markets like Turkey are now tightening rates to keep capital committed to region. (Reuters)
- Brazil is now supporting the real. (Bloomberg)
- Nice discussion of how and why Turkey is defending the lira. (Today’s Zaman)
Commodities
- “Brazilian Miner Vale Optimistic about Chinese Iron Ore Demand” (Wall Street Journal)
- Australia sees iron ore exports rising, even as demand falters. (Yahoo! Finance)
- Farmland values cool after years of explosive growth. (Missouri Farmer Today)
- “More Signs of ‘Peak Us’ in Study of ‘Peak Oil Demand’” (New York Times)
China’s Direction
- Stalled project shows why China economy is wobbling. (Wall Street Journal)
- “Why China’s Economy May Be Heading for a Crash” (CNBC)
- China’s liquidity crunch is nothing systemic. (Enterprising Investor)
Credit Markets
- How the Fed fueled an explosion in sub-prime auto loans. (Reuters)
- US Consumer debt (excluding mortgages) is soaring. That’s good news (for now). (Washington Post)
- US mortgage debt is still shrinking — but if housing continues recovery . . . (Federal Reserve Bank of New York)
Derivatives
- Sovereign CDS are less liquid these days, so traders focus on underlying bonds. (Reuters)
- “Biggest Credit Movers in CDS Market” (Markit, PDF)
Energy
- “Low Cost Hydrogen Breakthrough Uses Solar Energy and Rust” (Energy Collective)
- MIT reduces campus electricity usage by 15%. (MIT News)
- “Harvard Study Puts US as #1 Global Producer of Oil by 2017 at 16mm bpd” (Next Big Future)
Euro Crisis
- Fitch cuts France’s credit rating to AA+, outlook stable. (EuroNews)
- IMF fears Fed tapering could reignite the euro crisis. (Telegraph)
- Portugal and Greece troubles reignite European bailout fears. (Reuters)
Hedge Fund Money
- “Hugh Hendry: ‘The Invisible Regime . . . Has Become Unhinged’” (Zero Hedge)
- KKR launches largest Asia fund. (South China Morning Post)
- Carl Icahn is squeezing Bill Ackman to death on Herbalife trade. (Forbes)
- Greenlight Capital’s Gold Fund hurting from fall in gold. (Reuters)
Interest Rates and Central Banks
- “Fed Officials in Damage Control Mode” (CNN Money)
- PIMCO’s Gross says Fed will tighten policy in 2016 earliest. (Bloomberg)
Japanese Debt and Inflation
- Banks stay bond addicted, cash hoarders prevail. (Bloomberg)
- “Weak Yen Not Enough for Japan Exporters as China Slows“: Consider for just a moment what a true recession in China, let alone Europe, could mean for Japan. (CNBC)
- Abenomics giving locals newfound optimism. (Telegraph)
Stock Market
- Recent performance of the S&P 500 by sector. (Standard & Poor’s)
- Asian stocks slump as capital flows back to the US. (South China Morning Post)
US Real Estate Bubble 2.0?
- Fannie Mae Survey indicates mortgage credit is loosening. (The Mortgage Reports)
- UK home prices rising. (Bloomberg)
Time Capsule
- What follows in this link is a nice summary of books about the financial crisis in 2008. The recommended books are lumped by the author into three categories: journalistic blow-by-blow accounts, analytical assessments that sacrifice colorful details for broader assessments, and lastly screeds with half-baked conspiracy theories. (New York Times)
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
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